Stocks End Lower, but Still Up for February; Dow Within 100 Points of 2007 Record Peak

Stocks reversed their earlier gains in the final minutes of trading to close lower on the final trading day of February, but all major averages still finished higher for the month. The S&P 500 logged its fourth-straight month in positive territory.

Earlier, the Dow rallied to hit a fresh 5-year high, trading within less than 20 points of its all-time closing high.

"We may hit it (the all-time high), but the volume's anemic so we're just drifting up on nothing—you wonder where we'd be if the Fed wasn't supporting the market," said Alan Valdes, director of floor operations at DME Securities. "But having said that, you're missing this market if you're on the sidelines. The Fed's taking the market up and you can't swim against the tide."

"Everyone was waiting to buy the dip and when the dip began to disappear, everyone had to rush in…[psychologically,] people tend to run toward closing opportunities," said Art Cashin, director of floor operations at UBS Financial Services. "There are some technical signs of a broadening top, but at the same time, bulls can make the case that they're resting up."

On the economic front, the U.S. economy grew at a meager 0.1 percent rate in the fourth-quarter, according to the Commerce Department. The growth rate was the slowest since the first quarter of 2011.

Meanwhile, weekly jobless claims dropped 22,000 to a seasonally adjusted 344,000, according to the Labor Department, suggesting some improvement in the labor market. And the Chicago Purchasing Managers Index (PMI) of manufacturing activity rose to 56.8 in February. A reading above 50 indicates an expansion.

Among earnings, Sears posted quarterly earnings and revenue that exceeded Wall Street expectations, but shares slumped amid skepticism over the retailer's ability to turn itself around. Meanwhile, Kohl's slid after the mid-tier department store chain posted lower-than-expected earnings and forecast full-year profit that missed Wall Street estimates. The company also said it expects same-store sales to be between flat to up 2 percent this year.

JCPenney tumbled to lead the S&P 500 laggards after the retailer posted a much wider-than-expected loss and revenue that fell short of expectations. At least three brokerages cut their price target on the company.

Groupon plunged nearly 20 percent after the daily-deal website posted earnings that missed estimates and handed in current-quarter guidance that widely fell short of Wall Street projections. In addition, at least three brokerages slashed their rating on the company and Piper Jaffray lowered its price target to $7 from $8.

Gap and Salesforce.com are among notable companies slated to post earnings after the closing bell.

So far, 93 percent of S&P 500 companies have posted quarterly results, with 70 percent of firms topping earnings expectations, according to data from Thomson Reuters. The average rate has been 62 percent since 1994 and 65 percent over the last four quarters.

Pandora slumped after the the music-streaming company said it will introduce a 40-hour per month limit on free mobile listening as it struggles to overcome increasing royalty fees and as faces fierce competition from the likes of Sirius XM Radio.

Gold price slumped, on track to close down for the fifth-straight month, the longest losing streak for the precious metal in 16 years.

In his second day of testimony on Capitol Hill on Wednesday, Federal Reserve Chairman Ben Bernanke forecast it would take three more years for unemployment to decline to 6 percent, further diminishing concerns the central bank might tighten policy sooner than expected.

Investors will also be focusing on the ongoing debate in Washington over sequestration—budget cuts that will take effect starting March 1 if lawmakers fail to reach an agreement on spending and taxes. Economists estimate about a half percent hit to GDP from the $85 billion in annual cuts and analysts expect the defense sector to be the hardest hit, with half of the cuts coming from the Pentagon.